June 12, 2017 - Weekly Legislative Update
TIA has written to U.S. Senator Mitch McConnell (Majority Leader) and U.S. Senator Charles E. Schumer (Minority Leader) regarding the tax treatment of health benefits.
TIA appreciates the work Congress is doing to make health care more stable and affordable in the individual market. As you know, the Nation's employers provide stable, highly valued health benefits to more than 177 million Americans - the largest source of health care coverage in the country. As senators work to draft legislation to repeal and replace the Patient Protection and Affordable Care Act (ACA), it is of the utmost importance that legislation avoid any actions that could destabilize the employer-sponsored health care system. Chief among the threats to employer-sponsored coverage are proposals to tax workers' health coverage, whether by preserving the ACA's 40 percent "Cadillac" tax, or imposing new taxes on employee health care benefits. Legislation that implements a tax on health benefits ("cap on the exclusion") will result in a system that is worse than current law for workers and for employers, and failure to eliminate the Cadillac tax will raise coverage costs for American workers, their families and employers, and work against efforts to lower health care costs.
Employers sincerely appreciated that the 2015 reconciliation legislation (H.R. 3762, 114th Congress) fully repealed the Cadillac tax, and we applaud the 90 members of the U.S. Senate that voted for Senator Heller's Cadillac tax repeal amendment (S. Amdt. 2882). We hope the 2017 reconciliation bill will also fully repeal this harmful tax that is leading to higher costs and less coverage. Protecting employer-sponsored health benefits by repealing the Cadillac Tax and not imposing new taxes on the health benefits of working families is critical to the viability of this country's health care system.
TIA urges the Senate to also consider the other provisions in the AHCA that would improve access and affordability for employees and businesses alike. These include full repeal of other ACA taxes that raised prices for health care consumers, such as the taxes on fully-insured health insurance plans, on branded pharmaceutical products, and on medical devices. It is critical that legislation maintain the AHCA's elimination of employer mandate penalties, which will once again allow businesses to design benefits that best meet the needs of their workforce.
Additionally, AHCA made a number of changes to consumer-directed accounts that would help plan beneficiaries, including: linking the annual Health Savings Account (HSA) contribution limit to the maximum out-of-pocket limit, fixing the HSA catch-up contribution glitch, creating a grace period in between HSA-qualified plan enrollment and establishment of an HSA, eliminating the cap on Flexible Spending Arrangements (FSAs), and allowing the use of tax-preferred health accounts to purchase over-the-counter medications without a prescription. These provisions all will help reduce health costs for Americans, and should be preserved.
The Senate also has a critical opportunity to improve upon the House's legislation, in ways that can further reduce costs for consumers while improving the overall health care system. In this vein, we hope members will consider some of the following proposals:
- Ensure that an HSA-qualified health plan can offer first-dollar coverage, or waive beneficiary costs, for products and services likely to prevent catastrophic costs later. For example, if a plan chooses to cover diabetics' insulin before the deductible, or waive costs for a remote-monitoring device, this could benefit patients as well as the overall system by keeping beneficiaries healthy and out of the hospital;
- Completely wall-off excepted benefits from HSA-contribution eligibility. For example, if an individual has access to no- or low-copay telehealth benefits or on-site clinic options, this should not prevent the enrollee from making HSA contributions; and
- Streamline rules for rollovers from other accounts (like HRA and FSA) to HSAs, and simplify rules relating to which dependents' costs can be covered from the primary insured's HSA.
Employers contribute tremendously to the health care system, including expertise, innovation, significant resources, and coverage highly-valued by employees, retirees, and their families. We look forward to working with the Senate to ensure the next iteration of health reform legislation will help strengthen Americans' health insurance coverage options, improve the quality of health care, and take critical action to apply downward pressure on the real drivers of health care costs, without imposing new taxes on the health benefits of hard-working taxpayers.
TIA and the members of the Work Opportunity Tax Credit Coalition submitted testimony to the Subcommittee of Human Resources, Committee on Ways and Means, addressing opportunities for youth and young adults to break the cycle of poverty.
There are among this six million many disadvantaged youth who are plainly not ready for work because they lack basic skills and carry the scars of poverty. Valuable programs of intensive counseling, education and training, for such youth exist in State welfare departments who confront this problem regularly. During its hearing the Subcommittee received presentations on two model programs which have been achieving excellent results, Year Up and Alternative Schools Network.
There are, many in the disconnected youth population who are motivated toward work and willing to step into a job if they can find one, knowing an entry-level job is a stepping-stone to better days. We know this from the fact that "disconnected youth" ages 16-25 were a WOTC target group in 2009 and 2010, and during that time 424,306 were hired using WOTC. Combining DOL data on employment with JCT data on cost, the average cost to the Federal government was $1,100 a job, and the maximum cost is $1,560 because WOTC credit is capped.
The WOTC "disconnected youth" target group was terminated in 2010, but consider this: Total WOTC hires were 1,899,141 in fiscal year 2015, including 1,394,967 food stamp recipients, 210,674 welfare recipients (most of them long-term), 75,310 residents of poverty-stricken rural renewal counties,123,578 veterans, 53,583 ex-felons, 28,150 people with disabilities, and 23,089 SSI recipients, including youth. As the most common entering wage for these workers is around $9 an hour, we see most are likely to be low-skill youth. If a little more than half are youth, then WOTC is likely responsible for close to a million hires a year of disconnected youth.
Does directly placing nearly 2 million disadvantaged persons a year via WOTC mean that these people are without counseling or peer support or training? Actually, no, they acquire all this on the job, through counseling and training by their managers, learning from co-workers, and making personal adjustments to fit into their team. This cost is borne by employers.
If "disconnected youth" were restored as a WOTC target group, there's little doubt this focus would catch employers' attention because, for entry level jobs, employers count on motivation more than skill. Given the importance of quickly reducing those "out of school and out of work" to support the plan to ignite economic growth, incorporating WOTC into the economic plan while making disconnected youth a WOTC target group offers the best route to rapid reduction to a minimum level. The provision enacted in the 2009 ARRA should be copied verbatim and made a permanent part of WOTC; that program was highly effective; nearly a half million disconnected youth were hired in 18 months.
WOTC jobs are real, productive, tax-paying, private sector jobs distributed among 23 occupational groups in every major sector of the economy. Labor Department data shows 29.8 percent in sales and related occupations; 21.9 percent in production operations, including manufacturing, transportation, and construction; 18.7 percent in office and administrative support occupations; 17.5 percent in food preparation and serving occupations; 4.7 percent in healthcare and support occupations; and 1.6 percent in buildings and grounds cleaning and maintenance. The desired policy outcome is job, and jobs are what WOTC delivers-signed and sealed by State Workforce Agencies who certify eligibility of each worker before the tax credit can be claimed. This system has for two decades assured high program integrity, with no significant fraud or abuse.
If Congress sets expanded job opportunity targeted to some workers as a goal, the next question is the most efficient way of attaining that goal. The WOTC policy instrument, operating through the tax code during the past two decades, has proven to be the most cost effective Federal jobs program on record-no more than $1,560 per hire for ninety percent of workers (the credit is larger for long-term welfare recipients and certain veterans). The last time the Joint Economic Committee made an estimate of the cost of making WOTC permanent was in 2013 (see JCX-11-13) and the ten-year cost was $14.215 billion. A study conducted by human resources Professor Peter Cappelli of the Wharton School, University of Pennsylvania estimates savings in welfare payments alone exceed twice the ten-year cost of WOTC.
Congress must weigh WOTC's cost against the importance of the goal and its contribution to growth, as well as tangible savings from lower public assistance payments, and collateral benefits such as improved health and education outcomes in targeted populations.
In conclusion, our recommendations pertinent to the Subcommittee are:
- Enact permanent authorization of WOTC in tax reform;
- Authorize WOTC for all workers receiving cash payments under SSDI;
- Increase the tax benefit for hiring SSDI and SSI recipients, and Vocational Rehabilitation and Employment Network referrals;
- Extend WOTC eligibility to transitioning foster youth and dependents of active duty military;
- Make all non-profit employers eligible for WOTC in order to expand job opportunities in healthcare and education;
- Allow WOTC to be claimed against FICA tax, while reimbursing the trust funds from the general fund of the Treasury.